The Retirement Newsletter: Have I lost 12% of my pension?
Issue Number: -0.5 — look out for the hidden small print
Welcome
Welcome to issue -0.5.
This week, I will examine how I might have lost 12% of my pension. Hopefully, the HR department’s quick action has saved my retirement.
My retirement — the plan
If you’ve been a long-time reader of my newsletter, you will know I have been planning my retirement for roughly 40 years.
My original plan was to retire on February 1st this year (see Issue Number: -9.5). But, when I handed in my notice, my boss asked me to stay until the end of the term to do some teaching and assessments. I did not have to stay, as I had given three months’ notice, but I decided I would.
I had a pension quote for the 1st of February 2024 and based my retirement decision on that quote. And, as I was only staying on for a couple of months, it wasn’t a big deal. I felt happy to help out. However, I checked my pension company’s website to see the impact of working a few extra months.
My pension
My pension company (I will not name them, but I’m sure you can work out who they are from my employment — I work for a university in the UK) has an extensive website with calculators to help you estimate your final pension.
I have used the calculators over the years to help estimate my pension, and I know they give a good “ballpark” figure. They never exactly matched the amount presented in our annual estimates, but they were close. Using these calculators allowed me to spot the impact of being over 60 when I retired. Get past 60, and you get a nice little jump in your pension.
I set up the calculators (two of them, one you use when you have a quote and one for projecting forward) and played around with the final retirement dates. Both calculators gave similar answers — I would get a tiny increase in my final pension for each additional month I worked. The increase wasn’t huge — it would be about a tank of petrol per year for each extra month worked — but it was an increase.
The calculators showed me that working an extra couple of months to early April would not impact my pension.
The calculators were wrong — very wrong.
The pension shock
Just over a week ago, I came home late one evening after spending the day running assessments on campus (this was one of the things I was asked to stay on to do) and found a letter waiting for me. I was tired and almost ignored the letter. I thought I would deal with whatever it was over the weekend.
Luckily for me, I decided to open it. It contained a new pension quote for my new April retirement date. The quote showed an 11.9% drop in income from the February quote and an 11.9% drop in my lump sum.
Eleven point nine percent.
Just think about that for a minute.
An eleven-point nine percent drop?
I was sure it wasn’t right.
The calculators on the website didn’t show a drop; they both showed a slight increase.
I spent the rest of the evening trying to find where the 11.9% had gone.
I reran the calculations on the website. I looked at my original quote. It agreed with what was on the website. I looked at the various parts in the February quote to see if the new quote was missing a component. There was nothing to explain it. This suggested that something was happening in the background calculations of which I was unaware or that the new quote was wrong.
After a sleepless night, I called my pension company the next day.
The phone call
I called my pension company and asked why there was an 11.9% drop in the value of my pension. Their reply shocked me.
I was told that on April 1st, the adjustment for taking my pension early changed. This was the first I had heard of this change.
When I asked where to find information on the changes, the answer was “on the website.”
At first, I was told that the changes were on the homepage. They were not. Changes were mentioned, but these were beneficial changes connected to contribution levels to the scheme. As far as I could see, there was no mention of a decrease in pensions for taking your benefits early.
I asked for the figures and was told:
go to the homepage
click on the ‘For Members’ drop-down menu (there are four possible drop-down menus to pick)
click on ‘Calculate your benefits’ (one of around twenty items in the menu)
scroll to the bottom of the page, past all the calculators
click on the link ‘Learn more’ in ‘Factors used by….’
scroll to the middle of the page — the section on ‘Taking your pension early - early retirement factor’
click on the downward arrow in the box, and you can see the table of changes
I got the feeling they were trying to hide the information.
The person on the phone admitted that these changes were not in the online calculators. This explained why the 11.9% drop didn’t show up when I tested the change in my retirement date.
I was also told there was an additional penalty because I was delaying the start of my pension when I retired.
So, I was being penalised for taking my pension early and for taking it late. Interesting.
I was in shock.
The loss of 11.9% meant I couldn’t afford to retire.
HR to the rescue
I spoke to HR to see if they could do anything.
My thinking was to change my retirement date to avoid the changes or get my job back.
HR were fantastic and were able to move my retirement date. They recognised that I had changed my retirement date to help the university and had given more than three months’ notice.
Hopefully, this has solved the problem, and I will not lose 11.9% of my pension.
A lucky catch
This was a very lucky catch on my part, as the post in the UK is not great, and the pension company is not known for getting quotes and information out quickly. (I asked them for a recalculation of my pension over a week ago, and I am still waiting.)
What if the letter hadn’t arrived?
What if I delayed opening it? (It did look like junk mail trying to pretend it was a letter.)
I had almost ‘parked’ the letter as a weekend job because I was busy running assessments. Luckily, I didn’t.
A sleight of hand?
Now, this is where we move into conspiracy theory.
For the past year (well, it must be around eight years), the lecturers’ union has been in dispute with the pension company. There have been strikes over pay, conditions, and pensions. I have been on strike on several occasions.
This year, the union achieved what, I thought, were some improvements to the pension:
a reduction in contributions for employees and employers
a higher accrual rate for your defined benefit pension
salary threshold increase
higher cap for future pension increases
a one-off benefit uplift
I am now unsure if these are benefit improvements because anyone retiring early will see a significant fall in their expected pension.
I think the figures are being fiddled with, and the savings from the changes in early retirement compensate for the reduction in contributions and higher accrual rates. A sleight of hand?
What do you think? Let me know below.
Travel — Nostalgia Corner
This week, here are some more stories from my time in Bali:
Bali — Coffee Luwak Luwus, Bali, Indonesia — Would you drink a Luwak (Civet) Coffee? What did I think of it? If you are not familiar with Luwak Coffee, it is also known as Civet Coffee and is made from coffee beans pooped out by Civet Cats.
Bali — Cremation Ceremony at Penebel Kaja, Bali, Indonesia — Witnessing a cremation in Bali. This was an astonishing thing to see.
Bali — Warung Dhea Jatiluwih, Bali, Indonesia — Visiting the terraced rice fields of Warung Dhea Jatiluwih. Warung Dhea Jatiluwih is a UNESCO site, and I am still not convinced that achieving UNESCO status is good.
Bali — Alas Kedaton, Bali, Indonesia — Visiting the temple was not a pleasant experience, so avoid it. The architecture is stunning (there is better around), but the monkeys and the smell of monkey urine make for an uncomfortable visit.
Bali — Tanah Lot, Bali, Indonesia — This bustling tourist attraction is classic Bali and worth a visit at sunset.
Next week
Next week, in issue 0, I will be retired. I can’t believe it. I can’t wait.
Thanks
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Until next time,
Nick
PS: If you would like to contribute a story, advice, or anything else to the newsletter, please get in touch.
Please note: I am not a financial advisor. When I write about money and financial matters, I base my opinions on what I have read over the years about money and retirement preparation. IT IS NOT FINANCIAL ADVICE.